Empirical evidence shows that fundamental models have produced disappointing results over the
past 20 years while carry trade strategies have performed superbly. But the real picture is much
more complex. In fact, the track records of both strategies have varied considerably. This article
shows that they have actually alternated between periods of profitability and underperformance. It
also shows that when carry trade strategies perform well, fundamental strategies do poorly, and vice versa. Crises appear to play a significant role in the alternation of investment styles on currency markets. In contrast to carry trades, fundamental strategies perform remarkably well in crises. A portfolio that rotates between these two types of strategies, based on a risk aversion indicator such as implied equity volatility, would substantially outperform a pure carry trade strategy and would be robust to crises.